An economy is described by the following information:

(LO5)

a. State the relationship between aggregate expenditure and output Y to the real interest rate r for this economy in the format of an equation. [Hint: it should follow the format Y 5 a 2 b(r)]

b. Assuming that the real interest rate is 0.10 (10%), compute the numerical value for aggregate expenditure and output Y.

c. If the real interest rate increases to 0.12 (12%), compute the new numerical value for aggregate expenditure and output Y.

d. If the real interest rate decreases to 0.08 (8%), compute the new numerical value for aggregate expenditure and output Y.

Transcribed Image Text:

C 260 +0.8(YT) - 1,000r, I = 200 - 1,000r, G = 180, NX = 0. T = 300.